Executive
Summary:On
February 25th, 2000, the Asia-Pacific Center for Security studies held a
one-day seminar that focused on internal security challenges in China
and how those challenges might influence regional security.
The following is a summary of the basic conclusions from the seminar:

China
is Facing a Massive Unemployment Crisis that Could Undermine Social
Stability:China is currently
experiencing a painful transition to a more market-based economy.
Privatization of state-owned enterprises (SOEs) is resulting in
widespread urban unemployment, a trend that many Chinese officials fear
may undermine social stability. China’s real GDP growth has fallen
from 13% in 1994 to about 6% in 1999. China needs at least an
eight percent growth rate to outpace population growth and ensure
positive per capita growth.

China’s
Energy Demand Means More Reliance on Coal and Oil:One of
China’s most serious challenges in the 21st century will be securing
enough energy resources to meet its growing energy demands. Because
of its vast coal reserves, China is likely to rely even further on coal.
Oil will be another major source of energy. As oil imports increase,
China is likely to develop greater political ties with Middle Eastern
countries in order to secure its energy supplies. Reliance on
coal and oil will have significantly negative environmental consequences,
including acid rain and global warming.

Environmental
Degradation in China is Worsening: Despite
growing awareness in China about the importance of the environment,
pollution continues nearly unabated. China has five of the world’s
ten most polluted cities (Beijing, Shanghai, Xian, Shenyang, and
Guangzhou) and the problem of air pollution is likely to worsen.
Residential and industrial waste is increasingly dumped into China’s
lakes and rivers. The impact of environmental degradation will
likely extend beyond China’s borders as transboundary pollution,
environmental refugees, and climate change.

Social
Stability in China’s Rural Sector Can No Longer be Presumed:For many
decades, the Chinese Communist Party (CCP) has emphasized urban
development over rural development, partly because the Chinese Communists
adopted a Soviet Union-style planned economy. But this
anti-rural bias cannot continue without inciting widespread instability in
rural areas. Massive disparities in wealth now exist between rural
and urban areas, resulting in a massive internal migration ranging from
100-150 million. But urban migrants are often not welcome in
the cities.

Economic
Malaise Could Undermine CCP Legitimacy:Overly-optimistic
predictions about the Chinese economy are not grounded in reality.
Chinese economic growth is constrained by a number of factors
including low productivity growth, local government animosity toward
Beijing, corruption, growing energy demand, environmental degradation and
other factors. The most likely scenario for China is a 4% real
growth rate. By the year 2020, China’s GDP will likely total about
$2.6 trillion. But this rate of growth is inadequate to keep the
Chinese population satisfied and thus the legitimacy of the CCP could be
threatened.

China’s
Economic Problems are Influencing the Military:Members of the
People’s Liberation Army (PLA) are facing the same economic difficulties
that other segments of the Chinese population are facing. Low pay
and outside opportunities have created both recruiting and retention
problems for the People’s Armed Police (PAP) and the PLA.
This is a potentially explosive situation since members of the military
are trained in organization and orchestrated violence.

INTRODUCTION

China
is facing a myriad of internal challenges and problems as it moves into the
twenty-first century.China’s
ability to successfully solve these problems and manage these challenges will
directly influence China’s internal stability, the continuation of its“reform and opening up” policies, and the security of the region.In turn, China’s internal stability, economic and political
liberalization, and leadership will affect regional security.A partial list of the difficulties confronting China’s leadership today
might include:

-SOE divestiture

-Rising unemployment in rural and urban areas

-Massive internal migration

-Shrinking foreign direct investment (FDI)

-Corruption

-Shifting of power from the center to the provinces

-Poor regulation of the banking and financial systems

-Bad debt currently held by SOEs

-Growing political dissent

-A host of environmental challenges

-Ethnic tensions

-Muslim separatism

-Dismantling of the old social security network

To explore these complex issues the Asia-Pacific Center for
Security Studies (APCSS) held a one day seminar on February 25, 2000 entitled
“China’s Internal Challenges and Implication for Regional Security”.
The purposes of the seminar were three-fold:

·To determine which of China’s internal challenges have
implications for the security of the Asia-Pacific region;

·To assess China’s chances of successfully managing these
challenges; and

·To explore the possibilities for other countries to cooperate with
China in meeting these challenges.

The seminar also explored the linkages between and
connections among these challenges.The seminar was divided into four sessions:(1) China’s Economic Challenges: Implications for the Future; (2)
China’s Future Challenges: Energy and the Environment; (3) Social and
Political Consequences of China’s Economic Restructuring; (4) The PLA: Social
and Political Implications of Restructuring.This agenda allowed the participants to move from a general assessment of
China’s macro-economic situation to a review of the specific challenges
engendered by China’s economic restructuring.

China’s
Internal Challenges from an Economic Perspective

The
Chinese economy has performed admirably since reforms commenced with the
decisions of the Eleventh Party Congress in 1978.The successful effects of the reforms were clearly evident through the
mid-eighties to the early nineties, as reflected in the nation’s double digit
GDP growth.In contrast to the
experience in neighboring India, China has also succeeded in its efforts to
reduce poverty during the period between 1978 and 1988.Over that ten year period China reduced the number of people living below
the official poverty line from 570 million to 220 million while India’s figure
remained at 400 million.Why did the Chinese economy perform as well as it did
throughout the early stages of reform as compared to India?A major factor may be that foreign-direct investment (FDI)
over this period in China amounted to 261 billion dollars (20 times the FDI
directed towards India).China’s
accumulated FDI in 1998 represented 25% of GDP.However, FDI is currently shrinking and not expanding in China.China’s economy is slowing down and the reasons for this trend are
unclear.

One explanation may be that China accomplished the easier
economic reforms during the early 1980s.During this period, China opened up its economy to FDI and promoted
export led growth.In more recent years, however, Beijing has been forced
to dealwith the more difficult
challenges posed by price deflation, a troubled banking system, falling
corporate profits, shrinking export growth and declining FDI.That China’s economic planners have to deal with some very daunting
tasks is reflected in the following statistics:

-Export growth during 1998 was almost 0% in contrast to the 1997 figure of
21%.This was the worst trade
performance in fifteen years.

-Two-thirds of China’s export surplus disappeared during the first half
of 1999, although third quarter data show exports starting to rise.

-During China’s dramatic period of growth, the trade front provided fuel
for the economic engine.This
situation no longer holds true.

For years Beijing has tried to ignore market forces and
command economic growth through Soviet-style central planning.It urged state owned enterprises to produce goods without regard to
whether they were marketable or not—and often they were not.In February 1999 Beijing announced that two thirds of its key
manufactured foods were in oversupply.In
addition to the difficulties mentioned previously, China is now facing rising
unemployment and social unrest.Beijing’s
fears over social unrest stalled attempts at deepening economic reforms during
most of 1999.The leadership is on
the horns of a dilemma.It must slow down any economic reform that radically worsens
unemployment.Yet if it slows down
economic growth the leadership may be destroying one of the pillars of its own
legitimacy.

Seven percent GDP growth may not be high enough when viewed
in the Chinese context to keep the lid on the pot of China’s boiling economic
and social difficulties.China
needs at least an eight percent growth rate to outpace population growth and
ensure positive per capita growth.China’s
real GDP growth has fallen from 13% in 1994 to about 6% in 1999.Another reason for this reduction in growth is the shortfall in aggregate
demand.Consumers are reluctant to
spend due to fear of losing their jobs and are saving money to offset the
reduction in state subsidies.

The government has initiated a number of steps to deal with
these looming problems.It has
increased government spending to offset consumer demand shortfalls.This short-term fix is probably not sustainable.It is uncertain how long the government can invest in “make work”
programs when money is also required to service the debt, re-capitalize
insolvent state banks and establish a new pension system to replace the one that
is dissolving as the state divests itself of SOEs.Consequently the pressure for devaluation is increasing.Beijing will likely determine that preventing excessive or disruptive
unemployment is its highest priority.Social stability and availability of jobs are far more critical to
Beijing’s hold on power than any other factors.How should the leadership deal with its revenue shortfall?Certainly it could raise taxes, but this no doubt would worsen aggregate
demand.Perhaps China’s best
course of action is to scrap Central Bank control of capital markets and opt for
a Western style long- term bond market.Moreover,
entry to the WTO may boost aggregate demand, foster free competition, pave the
way for further economic reforms, and reduce capital flight.

Any degree of fragmentation or instability in China caused
by economic difficulties will affect the region.It is in the interests of China’s neighbors to provide the capital and
expertise as well as lend any cooperation they can as China finally begins to
tackle its fundamental economic challenges.

The
State-Owned Enterprises (SOEs)

The
reform of SOEs is perhaps the key to the overall reform program.Not only do they represent a significant portion of the
Chinese economy, but successful reform of this sector will result in
ameliorating some of China’s other significant problems such as corruption,
rising unemployment and collapse of the old social security net.In 1998 SOEs employed 90 million persons, 43.8% of the total of employed
persons in China.SOEs have been
responsible for the housing, medical insurance, pension, and child education of
their employees and their families.

Despite the key position that SOEs occupy in the economy
and the important social welfare functions they perform, SOEs have been
producing at below 50% of their capacity.Most
SOEs are confronted with capital shortage, debt, overstaffing, and outdated
technology.The government
has made some progress in SOE reform.For
example, in Shanghai, “by the end of 1998 some 1028 state firms had been
annexed or had gone bankrupt.The
total number of SOEs has been lowered to 30% of the city’s total of 70% in
1990.”According to official
figures, in 1997 39.1% of SOEs operated at a loss.In 1998 the figure was reduced to 22.4%.As the state divests itself of unprofitable SOEs, the number of
unemployed has concomitantly grown.The
number of the unemployed in urban areas alone is estimated at 16 million and a
further 12 million may be laid off in the year 2000.The South China Morning Post reports that although official
unemployment is listed at 3%, the real figure is probably 10%.The leadership is unwilling to exacerbate unemployment any further and
has therefore readjusted its target date for the completion of SOE reform to
2010.

Over the next ten years the government hopes to continue
the reform of SOEs at a slower pace by using debt-to-equity swaps with state
banks along with the help of financial asset management firms, the introduction
of modern corporate management systems, and introduction of a shareholding
system.Whether the central government is successful in accomplishing
its goals remains to be seen.In
the face of growing regionalism in China, the center must contend with the
attitude that “the higher authorities have their policies, the localities have
their countermeasures.”The
situation in China’s western provinces is even more pronounced.Already suffering from a wealth gap when compared with
China’s coastal provinces, local authorities in the west may be even more
loathe to move on SOE reform because of the dominant role SOEs play in their
local economies.However, if SOE
reform is unsuccessful in the west it will further widen the income gap in
comparison with the coastal provinces and may possibly exacerbate ethnic and
religious tensions that have already surfaced in those areas.

In the long term, China’s entry into the WTO will serve
as a catalyst for SOE reform by forcing China’s SOEs to speed up reform for
their survival in market competition.In
the short term, however, WTO entry may be more harmful than helpful in that many
SOEs will be unable to compete against high quality foreign products.This will likely result in additional bankruptcies and even more
unemployment.One estimate projects
that if imports increase by 10% without commensurate export growth, 50 million
more employees would lose their jobs.

China’s security is closely bound up with the security of
the region.An insecure and unstable China would have a profound impact
on the security of the region.As
the presenter for this session of the seminar clearly pointed out, China has
made significant contributions to regional security by playing a positive role
in maintaining peace on the Korean peninsula, preventing regional nuclear
proliferation, and establishing confidence-building measures (CBM’S).China could also have major negative effects on the security of the
region through massive migration, a rise in drug trafficking and increased
pollution.The degree of domestic
stability or instability is directly linked with these negative factors.“If China’s SOE reform does not succeed, further workers will be laid
off, regionalism (in China) would rise, and separatist movements in some areas
would escalate.Thus the success or
failure of SOE reform is an important factor in affecting the domestic stability
and Asian-Pacific security.”

This session closed with some possible suggestions for
cooperation with China on SOE reform:

-Increased foreign investment in SOEs as allowed by new regulations

-Sharing modern management techniques to establish SOEs along corporate
lines

-Assistance in the establishment of a new social security net in China.

China’s Growing Energy Demand

As
China develops its economy, it requires ever greater supplies of energy.
Many observers believe that energy will be one of the most serious challenges
for China in the 21st century. Currently, China relies heavily on fossil
fuels for its energy supplies, with coal serving a primary role. Other
sources of energy include oil and natural gas. Despite its
possession of vast energy supplies—especially coal—China is expected to
experience energy shortfalls in the next few decades. The gap between
energy demand and supply may be as large as 140 million tons of coal.
For China, the most obvious solution is to rely even more extensively on coal.
However, in the long term, questions are arising about whether such a strategy
is sustainable. Coal contributes substantially to China’s air pollution.
It also contributes to acid rain, a problem that is regional and not simply
limited to China. Finally, greater use of coal will ensure that China will
be responsible for a greater proportion of the world’s carbon emissions, a
factor linked to global warming and climate change. Given these
challenges, the question that emerges is: is there an alternative?

One way that China could meet its growing energy demand is by emphasizing
efficient use of energy.Although
efficiency has improved in the past several decades, it lags behind advanced
industrialized countries substantially and thus the margin for improvement is
substantial.Another alternative
might be greater reliance on natural gas which is a much cleaner form of
alternative energy.China has about
33 trillion cubic meters of natural gas of which only 3 trillion cubic meters
have been prospected thus far.

Another possible clean energy alternative for China
is nuclear energy.China’s nuclear industry relies on both
indigenously-developed technology as well as imported technology from France,
Canada and Russia.In 1991, China
first produced electricity from nuclear energy; today China has more than 3
nuclear power reactors in operation.China
is currently building eight new reactors in four stations.Although nuclear energy in China is promising, there are a number of
limitations.First, it is not
realistic that enough nuclear power plants could be constructed to substantially
lessen China’s reliance on other forms of energy, such as coal and oil.Secondly, there is the long-term problem of nuclear waste, a problem that
would only worsen as more plants are constructed.

China’s energy needs have at least two implications
for regional security.First,
as China seeks to develop nuclear energy, there is an opportunity for further
U.S.-Chinese cooperation in this area (including on the issue of nuclear
safety).When President Clinton visited China in 1998, he noted that
nuclear energy was a “win-win-win” victory for his China engagement policy
(i.e. it mitigates China’s environmental problems, promotes American business
and advances nuclear non-proliferation).Secondly,
to the extent that China must turn to external energy sources (i.e. oil), its
foreign policy will have to be adjusted to reflect this reality.The Middle East will continue to be China’s key oil supplier well into
the foreseeable future.China is
fully cognizant of this reality and will cultivate relations with major powers
in this region, even to the extent that it contravenes the interests of other
Asian countries, Europe and the United States.China will also seek to maintain stability in Tibet and Xinjiang to
ensure access to oil.

China’s Environmental Challenges

One
of the major challenges to China’s drive toward modernization is environmental
degradation and its related problems.The
presenter for this session noted that almost from the beginning of the
establishment of the People’s Republic, Chinese officials have emphasized
economic development over environmental protection.In recent years, officials have begun to realize the flaws of such
policies.In its 1999 State of
the Environment Report, the government noted several dismaying trends.First, the environment had not improved from previous years despite a
growing awareness of its importance to national development and human health.Second, many problems described in earlier reports had further
deteriorated; for example, illegal logging was accelerating deforestation and
encroaching on agricultural land; five of the world’s most polluted cities
were in China (Beijing, Shanghai, Xian, Shenyang, and Guangzhou); the problem of
acid rain was getting worse; loss of arable land was accelerating to the point
that total farmland declined by 20 percent; water pollution was worsening as
municipalities and factories continued to dump human and industrial waste into
the nation’s rivers, among many others.

Environmental degradation in China is not only a blight to
the aesthetic beauty of the country, it also has far-reaching economic and
social implications.For one, it
was noted that total air and water pollution in China costs the nation $54
billion (or about 8% of the nation’s GDP), a figure that includes health and
productivity losses.Environmental
degradation in China is also contributing to mass internal migration in China, a
trend that has generally been attributed to only economic factors.For instance, there are reports that up to 25 million people in inner
Mongolia have migrated to other parts of the region in search of scarce water
supplies.Moreover, environmental
pollution is also sparking violent conflict in some cases.There were 830 such incidents in 1993, attributed to popular anger about
environmental issues.In some
cases, a polluting factory will spark a mass protest, especially when it is
revealed (as is often the case) that official corruption is partly to blame for
the presence of pollution.

Despite the nation’s vast environmental challenges,
Beijing’s response has continually emphasized economic growth first,
environmental protection second.The
government has various laws that address environmental pollution, but they are
either not enforced, or have too little teeth.For example, many factories would prefer to pay the fines associated with
their pollution, rather than making the costly improvements that would reduce
pollution levels.China’s own environmental protection agency, with a staff
of 600, was recently forced to endure a massive restructuring that resulted in a
loss of 50% of the staff.Thus, it
is clear that environmental protection will likely remain a low priority for
China for the foreseeable future.

Sustained environmental degradation in China portends a
bleak future for the Asia-Pacific region.Transboundary
pollution is likely to grow as a political problem between China and Japan.Moreover, to the extent that environmental problems in China induce
migration, many neighboring Asian states may need to prepare for an influx of
“environmental refugees” from neighboring China.China is also a major contributor of carbon emissions, which in turn
exacerbates global warming and climate change trends.

Challenges in China’s Agricultural Sector

Session
three focused on the political and social implications of China’s economic
reforms, and likely scenarios for the next two decades.The first presenter focused on problems in China’s agricultural sector.She noted that the growing fissures in China’s economic and political
system also reflect contradictions in China’s agricultural sector.China’s population can be divided into roughly three parts: farmers
(about 700-800 million), rural migrants (150-250 million) and urban residents
(250-350 million).Demographically
and politically, China’s rural sector is the most important, it was argued.Moreover, the Chinese Communist Party owes its initial success to rural
residents; Mao Zedong depended heavily onsoldiers
from rural areas in his battles against both the Chinese Nationalists
(Kuomintang) and invading Japanese soliders.

Nevertheless, the CCP continues to pursue an “anti-rural
bias” in its domestic policies, according to the presenter.This trend can be traced to the period when the CCP came to power in
1949.At that time, the CCP adopted
the Soviet Union-style planned economy.Urban
development would receive the highest priority, while farmers would participate
in a support role.Under this
arrangement, rural residents were unable to gain access to state welfare (such
as medical care, housing, food rationing, education, etc.).The adoption of the urban hukou system (a system which required
urban residents to be registered in order to gain access to various welfare
benefits) stifled rural-to-urban migration and thus limited one avenue in which
rural residents could have improved their lives.Additionally, rural residents were also saddled with the task of ensuring
China’s food security, primarily due to a number of arrangements that required
rural farmers to sell their grain to the state at artificially low prices.

The urban-rural divide and the government’s
anti-rural policies have caused a situation in which “income disparities
between the city and the countryside created a dual economy and a society with
clearly demarcated lines of stratification.”This divide, the presenter argued, is simply not sustainable.Rural residents have tried various “fence-breaking” techniques such
as evading state policies on farming and engaging in various entrepreneurial and
free market pursuits, such as the “baochan daohu” system.In the early 1990s, Beijing relaxed some of its anti-rural policies by
adopting market reforms for the agricultural sector.Chinese farmers were encouraged to grow more lucrative and
varied crops.But this
liberalization was short-lived due to a sharp increase in grain prices in 1994
that in turn spurred Beijing to re-introduce price controls.

The presenter noted that the CCP, despite its rural roots,
is much more concerned about stability in urban areas and hence is willing to
sacrifice the welfare of rural residents to achieve its aims.The party is also worried about mass urbanization resulting from the
large pools of unemployed that now exist in rural areas.Rural residents who do manage to migrate to medium or large cities often
face huge obstacles.Education for
their children is often denied; health care is scarce.Moreover, anti-crime campaigns by urban officials often target rural
migrants.The presenter noted that
these policies are not sustainable if China seeks to maintain domestic
stability.The CCP should consider
new land use rights and the elimination of the hukou system.

China 2020: Looking Toward China’s Economic Future

The
second presenter focused on the future of Chinese economic growth and its
implications for internal domestic stability.First, he offered three basic scenarios for China—one in which China
will become the world’s second largest economy by the year 2020, another in
which China experiences a slowdown over the next two decades, which in turns
causes a loss of legitimacy for the CCP and possibly leads to disorder, and
finally a scenario of economic stagnation.The presenter noted that the high-growth scenario that is often touted in
the popular press is probably not realistic; if it were likely, China’s gross
domestic product (GDP) would have to reach $11.2 trillion in the year 2020
(compared with the U.S. at $15.4 trillion and Japan at $9.4 trillion).

Four major factors are barriers to high economic growth in
China.First, there is the problem
of low productivity growth.The
presenter asserted that China’s productivity growth is much less than is
commonly believed and that it is difficult to convert China’s high savings
rate into useful capital that can then fuel additional productivity.Secondly, there is the problem of “animosity, bureaucracy and
corruption”.Animosity refers to
growing internal ethnic cleavages in China—such as the Uyghur separatist
movement in China’s western region. The impediment that bureaucracy presents
is related to the “local-central” divide that persists between local
governments and Beijing.Local
governments often pursue policies that circumvent national directives.Corruption makes the problem worse.China is increasingly recognized as one of the most corrupt
countries in the world.

A third factor is reliance on exports to fuel economic
growth.Much of the
enthusiasm about China’s economic growth is rooted in the fact that exports
have played such a prominent role.From
1987 to 1995, the real rate of Chinese export growth was 18.1% a year, which was
significantly higher than the overall growth of the economy.Yet continued export growth at this rate is not realistic.If China’s exports to the United States, for example, were to continue
at their present growth rate, they would constitute almost 80% of U.S. imports
and the U.S. would likely have a trade deficit of 48% of GDP, an unlikely
scenario.A similar dilemma
involves foreign direct investment (FDI).Since
1980, foreign investment in China has grown at a rate of 35% a year; in 1995,
moreover, foreign direct investment totaled about $35 billion.However, current evidence suggests that this trend is reversing.Investors are realizing that China is not as profitable as they once
believed.Moreover, continued
FDI at past rates is not realistic: “With 35% annual growth, China’s
receipts of foreign capital will exceed all of Japan’s foreign investment in
two years and in ten years China would have to receive all of the international
capital invested in the whole world.”

Other constraints to economic growth in China include
energy demand and environmental degradation.Regarding energy, China is already the world’s largest energy consumer
in the world, consuming 850 million metric tons of oil equivalent.China’s energy demand is expected to jump significantly over the next
25 years.To satisfy its growing
energy needs, China will most likely increase its dependence on imported energy.In fact, China will likely become the world’s largest energy importer
by 2010, with most imports coming from the Persian Gulf and Siberian Russia.Growing energy demand and consumption portends massive environmental
consequences.Roughly 300,000
Chinese citizens in urban areas annually suffer premature deaths due to outdoor
or indoor pollution.If
environmental standards continued to be ignored by Beijing, the “cumulative
effect of deteriorating air and water quality will sharply reduce both the
country’s productive capacity and the living standards of the Chinese
people.”

Overall, the presenter proposed three scenarios for the
future of Chinese economic growth: the “medium growth” scenario, the “low
growth” scenario, and the “economic stagnation” scenario.The presenter argued that the “low growth” scenario was the most
likely.Under this scenario,
China’s real growth would average about 4% a year and by 2020 China’s GDP
would likelytotal about $2.6
trillion.This GDP would make China
the fifth largest economy, placing it squarely between Korea ($3.2 trillion) and
France ($2.4 trillion).The
presenter noted that if the “low growth” scenario actually takes place, it
could be devastating for the Chinese Communist Party which, as a substitute for
its loss of ideological legitimacy, has maintained a bargain with the Chinese
people “to deliver the goods.”If
the CCP is not able to improve the material welfare of the Chinese people, it
will likely face opposition to its rule—most likely from provincial
governments—and this could in turn lead to political instability.

The People’s Liberation Army: Social and Political Implications of
Restructuring

Most
of the analysts who follow the People’s Liberation Army (PLA) focus on
China’s military purchases from Russia and the PLA’s threat to Taiwan while
ignoring the volatility of the internal security problem in China.Members of the PLA are facing the same economic difficulties that other
segments of the Chinese population are facing.The demographics of an aging population leave a smaller manpower pool
available for military service, a problem exacerbated by the one-child policy.If the government cannot provide the expected social and health safety
net for the elderly, leaving the burden on families, the incentive for a young
person to serve in the military is lower.Military
pay is barely sufficient to sustain the soldier, let alone a family, and
military service takes the child away from the family.Because pay is so low in the security organs of China, whether it be the
PLA, People’s Armed Police (PAP), or the Public Security Bureau, the incentive
to engage in corruption is quite high.In
short the leadership cannot isolate the members of its security organs from some
of the same problems caused by economic re-structuring that members of the
population at large are facing.If
any of the difficulties mentioned earlier grow to the point where the
intervention of any of China’s security branches is required, the loyalty of
those branches in a crisis may be suspect.

Low pay and outside opportunities have created both
recruiting and retention problems for the PAP and the PLA.If a family member leaves the farm, he or she tends to migrate to the
urban labor market and thereby avoids military or paramilitary service.The disincentives to join the military and the incentives to
avoid conscription are higher now than they ever have been in China for four
reasons.

-With the high losses incurred against the attack on Vietnam, it became
clear that it was dangerous to send a child into military service.

-Sending a son or daughter into military service is a poor economic
choice.

-Due to the actions of the PLA in 1989, entering the military is a
distasteful political option.

-As the Party slowly loses its mantle of legitimacy, doing anything for
the Party or state organs of power increasingly becomes a meaningless political
choice.

The degree of loyalty to the party within the PAP may be
more highly suspect than that of the PLA.Following
basic training, PAP troops are generally not isolated from the general
population as are the troops of the PLA.Because
they are not confined to the barracks, they have opportunities to mingle with
the populace.They generally enjoy
close relationships with the local families and children where they work.Generally speaking, because of this familiarity, the PAP was
reluctant or failed to use force against the population in Beijing in 1989.That is why the PLA was tapped to restore order.To avoid using the PLA in the future, the Central Military Commission has
increased the numbers of the PAP by converting whole divisions of the PLA to the
PAP.Thus the Party’s leadership
hopes that if it again becomes necessary to suppress large segments of the total
population, they can depend on the new PAP units.

In addition to suspect loyalty, there is another internal
security problem looming in the background.The PLA has demobilized thousands of soldiers who have received basic
military training.Moreover,
workers in the countryside and in the cities have either served in the military
or have received militia training.China
now has a large group of people who know how to use violence and manage force in
an organized way.Many people in
this large pool are disgruntled due to the economic and social problems
mentioned earlier.The problem is
further compounded by the previously mentioned state of affairs in the SOEs.The potential for labor unrest in the SOEs is high.The one million-plus officers and soldiers in the reserve forces of the
PLA are primarily located in the state or collectively owned enterprises of one
form or another.The presenter
ended this session with the following questions:

“In the past, the CCP has always been able to call
on the PLA to suppress unrest when it was ordered to do so.And in the near term, it can probably count on the PLA again.But if the PLA faces parts of the PAP and its own reserve divisions, will
it act resolutely?Or will things
devolve into a general breakdown of the government?This is the dilemma that China’s leaders face, and they are
riding a tiger they are having difficulty controlling as they liberalize the
economy.”

Conclusion

Throughout
the seminar, two themes remained constant:Because China faces so many internal problems and many nations in the
region have experience in managing similar problems, there is ample opportunity
for other countries to share their expertise with China.Such cooperation may create an atmosphere that could be extended to more
sensitive realms of security as nuclear non-proliferation and border disputes.Secondly, all participants agreed that China is still far away from a
Soviet style collapse; however, should China be unable to solve one or more of
the many challenges it faces, the result will be some decrease in the internal
stability of China.Restructuring
the economy has created a degree of fragmentation in China.Fragmentation can be a destabilizing factor for any regime.The leadership will react but how?Will
it become more strict or perhaps even more intolerant of opposition?Will it divert attention away from internal problems by whipping up an
already nascent nationalism?The
very scale of China (large population, geographic size and location, etc.)
implies that any degree of instability in China will likely affect the region as
a whole.Hence there is even more incentive for China’s neighbors to
work with China on cooperative solutions to the challenges that China faces.

China has often been described as a country full of
contradictions.The Chinese themselves often use the term “maodun”
or contradiction.What struck all
participants was the degree of contradictions that the Chinese leadership faces
as it manages many of the challenges discussed in the seminar.Some of these contradictions:

-How will China reduce the number of SOEs and not increase the number of
unemployed?

-How can China divest itself of SOEs without concurrently creating a new
social security net?

-How can China’s leadership guarantee the future loyalty of its security
organs when it cannot shield them from the same economic problems faced by the
population at large?

-How long can China continue the development of the urban sector at the
expense of the rural sector?

The manner in which Beijing manages these
problems will determine whether China is a beacon of progress and stability
within the East Asia, or a source of instability and chaos that would almost
certainly hemorrhage outward beyond the country’s borders and thus create
grave security consequences for the entire Asia-Pacific region.

This report was authored by Col. Robert Forte,
Chairman, Dept of Transnational Studies, andPaul J. Smith, Research Fellow, of
the Asia-Pacific Center for Security Studies. For more information, please contact
them at 808-971-8976 .

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